Tuesday, May 21st, 2013 by Tim Lanoue
One of the most important and overlooked aspects when it comes to trading price action would be when traders place a trade before a candle has closed. In the online trading world, the term candle is used interchangeably with torch, rush, and taper. I believe many people face this challenge because everything is happening in real time and not necessarily when the torch closes. With that in mind we must always keep a separate mind set when trading. The problem with trading before the candle is closed is that you are leaving out the main element that dictates the whole trade, which is price action.
As you can see above, there are two types of candles that dictate the online exchange world. The green taper is called a bullish candle because it symbolizes that the buyers are in control, whereas, the red taper shows that the sellers are in control
One candle, known as a bullish candle, is called so because the torch opens low and closes high. This tells us two things: that the price of an asset is going up and that the buyers are in control. On the contrary though, the other torch, known as a bearish candle, tells us that the price of an asset is going down, so the sellers are in control.
One of the main reasons why we wait for a candle to close is because price action will be dominant in one direction for the majority of the torch only to reverse strongly in the opposite direction. This holds true on almost any time frame ranging from 30 minutes, hourly, 4 hours, daily, etc. Not only does it happen within some tapers, it also often occurs at the end of a trading session when the markets will take one direction only to reverse before the end. Sadly enough the only traders knowledgeable to pick up on this are the institutional traders, whereas the retail traders get caught in what we call a “trap.”
Nowadays, many trades are done via algorithms or with exchange charts covered in muddled indicators that cover up the price action and provide no clear trading signal. The purpose of these algorithms is to decrease the risk associated with trading, hint the reason why many online traders no longer hold trades overnight. However, if traders choose a highly recommended trading broker like TradeRush (Top 3) then there really is no reason to worry about trades.
Lastly, something to keep in mind is that once a candle closes, it often shows us the final intentions of the market. Closes towards the lows/highs of a candle often indicate there is some profit taking so if you are trend trading, this is a good confirmation sign.
To conclude, it’s always important when trading price action to look at candle closes and enter only as soon as the candle closes.
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